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Solutions To Sample Questions - GMP

This document contains 5 sample questions related to operations management and forecasting. Question 1 involves calculating optimal order quantities to minimize costs given demand and holding/ordering costs. Question 2 calculates safety stock levels needed to meet a 95% service level given mean demand, standard deviation, and lead time. Question 3 involves calculating the optimal order quantity for a newsvendor given demand probabilities and costs of overstocking and understocking. Question 4 evaluates whether an intern can improve a company's forecast accuracy using exponential smoothing and thereby receive a job offer. Question 5 involves minimizing costs over 6 months given production limits, demand forecasts, and inventory, backorder, and subcontracting costs.

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21 views3 pages

Solutions To Sample Questions - GMP

This document contains 5 sample questions related to operations management and forecasting. Question 1 involves calculating optimal order quantities to minimize costs given demand and holding/ordering costs. Question 2 calculates safety stock levels needed to meet a 95% service level given mean demand, standard deviation, and lead time. Question 3 involves calculating the optimal order quantity for a newsvendor given demand probabilities and costs of overstocking and understocking. Question 4 evaluates whether an intern can improve a company's forecast accuracy using exponential smoothing and thereby receive a job offer. Question 5 involves minimizing costs over 6 months given production limits, demand forecasts, and inventory, backorder, and subcontracting costs.

Uploaded by

Raj
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Sample Questions

Q1: The demand requirements for a firm in the next four weeks are given in the following table.
The only relevant costs the firm faces are inventory carrying costs and ordering costs. The
ordering cost for every order placed is $200, while the inventory carrying cost is $2.5 per unit
per period. Calculate the order sizes that will minimize the overall costs. (Assume there is no
capacity restriction). Also compute the total costs for such an ordering policy.
Week
Demand

1
77

2
85

3
100

4
71

Sol: Apply Dominant Sequence approach


The optimal ordering policy to minimize total cost is 77, 85, 171, 0
Q2: The firm ABC Pvt. Ltd. received a contract from a retail giant under a service level
agreement of 95%. The mean demand is 200 per week and the weekly standard deviation of
demand is 25. If the lead time of production is 3 weeks, calculate the safety stock levels that
ABC Pvt. Ltd. must maintain to honor the service level. [Use P (Z<1.645) =0.95 where Z is the
standard normal random variable]
Sol: The amount of safety stock required is k..L where k=1.645, L=3 weeks and =25
Reorder Level (ROL) = 200*3+ k..L
Q3: A newspaper vendor has only one chance of placing an order on a given day. He purchases
the newspapers from a vendor at the rate of $2 per unit and sells them at $3.5 per unit. Further, at
the end of the day, the leftover can be sold to a junk dealer at the rate of $0.5 per unit. He knows
the probability distribution of sales of newspapers given by the following table:
Demand
25
26
27
28
29
30
Probability 0.1
0.15
0.25
0.3
0.15
0.05
How much should the newsvendor order to maximize his expected profits? Also calculate the
expected profit.
Sol: Cost of understocking, Cu= $1.5 and cost of overstocking is CO=$1.5
Critical fractile= Cu/(CO+Cu)=0.5, and hence optimal order quantity is 27.
Q4: A firm has been following simple moving average to forecast demand. Currently, they are
able to achieve a MAPE of 23%. However, the industry average has been 15%-18% over the past
5 years. Hence, the pressure is on the management to improve their demand forecast. A business
school intern was hired for the same purpose. His goal is to improve their demand forecast by

making the MAPE fall below 15%. If he is able to achieve the same, then his internship will be
converted to a job offer. The intern, after going through a basic course in forecasting, took up the
challenge to improve the forecast accuracy. He uses simple exponential smoothing model for his
purpose. He divided the entire data set of past demand values into two parts, in the ratio of 6:1.
The first part will be called training dataset and the second one will be called testing dataset.
Based on the training dataset, he calculated the optimal value of which comes out to be 0.75.
The last period of the training data set have the following values: Actual demand- 890;
Forecasted demand- 925. The testing data set has 6 data points, which are 915, 875, 900, 925,
930 and 895. Calculate the MAPE for intern on the testing data set using the optimal value of
found from the training data set and decide whether the intern will be given the final job offer.
Sol:
Alpha
Actual
Deman
d

MAP
0.75 E
Forecaste
d
Demand
Error
35.000

890

925.000

915

898.750

875

910.938

16.250
35.938

900

883.984

16.016

925

895.996

29.004

930

917.749

895

926.937

12.251
31.937

2.802
%
Abs %
(Error)
3.933
%
1.776
%
4.107
%
1.780
%
3.136
%
1.317
%
3.568
%

Since MAPE has reduced to 2.802% which is way better than the target, hence the intern should
be given the job offer.
Q5: A firm predicted the demand for next six months as given in the following table
Months
Demand

Jan
350

Feb
490

Mar
185

Apr
375

May
230

Jun
300

The firm will have a policy of not firing its employees in the next six months. Whenever, there is
an upside/downside in the demand that will have to be met by either inventory/backordering or

subcontracting. Further, not more than 50 units can be subcontracted in any months. There is an
upper limit on the production for any month, which is 400 and the beginning inventory is 0. The
only relevant costs are given below:
Backorder cost
Inventory Holding Cost
Subcontracting cost

7/unit/month
3/unit/month
10/unit/month

If X1, X2, .., X6 be the production quantities in each month, D1, D2, , D6 be the demand in each
month, I1, I2, , I6 be the inventory kept in each month, B 1, B2, , B6 be the amount of
backorders in each month and S 1, S2, , S6 be the amount subcontracted in each month, then
write down the inventory balance equation for the month of April and June.
Also find the solution that will minimize overall costs.
Sol:
Inventory Balance Equation for April
X4+I3-D4-I4+S4-B3+B4=0
Inventory Balance Equation for June
X6+I5-D6+S6-B3=0
Since we have a visibility of time horizon only up to June, hence it is not optimal to either keep
any backorder or to keep any inventory in the last month and hence B6=I6=0.
Since the upper limit of monthly production is sufficient to meet the entire demand and also
since subcontracting is costlier than both inventory and backorder, hence it is not optimal for the
firm to go for subcontracting. Thus, the entire order can be met either by inventory or by
backorder. Further, since backorder is costlier than inventory, as far as possible it should be
avoided.
The production quantities will be 400, 400, 225, 375, 230 and 300

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